Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Pacific Electric Company (PECO), a Northern Californian power company, is currently unable to produce sufficient power to meet customer demand during peak time periods, leading

Pacific Electric Company (PECO), a Northern Californian power company, is currently unable to produce sufficient power to meet customer demand during peak time periods, leading to widespread 'brownouts'. PECO is considering raising the price of power during the peak time period and lowering the price of power during the off peak time period. From past experience, PECO knows that the own price elasticity of demand for power used during the peak time period is -0.25 and the cross price elasticity of demand for power using during the peak period with respect to a price change for off peak electricity is 0.10. 


Assume that on a typical day PECO's customers consume 1,000,000 kilowatt hours of electricity during the peak period and 400,000 kilowatt hours during the off peak period. PECO's capacity is 800,000-kilowatt hours during both the peak and off peak periods. The current price of electricity is 12 cents per kilowatt hour for both peak and off-peak periods. PECO is considering instituting an 18 cent per kilowatt hour peak price and a 9 cent per kilowatt hour off peak price. 


a. What percentage decrease in usage during the peak period results from raising the peak price to 18 cents.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

To calculate the percentage decrease in usage during the peak period result... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Marketing And Export Management

Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr

8th Edition

1292016922, 978-1292016924

More Books

Students also viewed these Economics questions